News Release: Agencies Propose Basel III Endgame & Enhancements after 2023 Crisis


August 2, 2023

William Pierre-Louis, Jr.
(347) 499-7874

Agencies Propose Basel III Endgame & Enhancements after 2023 Crisis

Washington, D.C. – The Federal Reserve, Federal Deposit Insurance Corporation, and Office of the Comptroller of the Currency jointly announced on Thursday, July 27, a notice of proposed rulemaking to implement final components of the Basel III regulatory capital framework for Large Banking Organizations and introduce changes in response to the banking crisis of 2023. 

“Many executives and the bank lobby will oppose these capital proposals,” said Alexa Philo, senior policy analyst at Americans for Financial Reform Education Fund. “What they won’t say is that bankers profit from weak capital rules. This proposal represents a significant stride toward safeguarding the American public from subsidizing undercapitalized banks.” 

The Basel III Endgame proposal modifies the risk-based capital framework to apply to a broader set of firms, including those with total assets of $100 billion or more, and firms with significant trading activity. The proposal introduces new and improved standardized approaches for credit, market and operational risk, and a revised approach for measuring derivative risk. These changes allow for better capture of these risks and increase the transparency and consistency of the framework. 

A second component incorporates lessons from the 2023 banking crisis by requiring Category III (TA of $250-$700 billion or $75 billion or more in nonbank assets, weighted short-term wholesale funding, or off-balance sheet exposure) and Category IV (TA of $100-$250 billion) firms to include unrealized gains and losses from certain securities in their capital ratios. The proposal also requires Category IV firms to adhere to the Supplementary Leverage Ratio and the Countercyclical Capital buffer, if activated.

“Loose capital standards make it too easy for executives to take on excessive risk to try to increase short term gains – and their own compensation along with them – and rely on the public and the government to bail them out when things go wrong,” said Philo

The proposal preserves existing, higher standards for G-SIBs and does not change requirements for smaller, less complex banking organizations. Additionally, the NPR proposes a three-year transition period to phase in these changes over the period July 1, 2025 to July 1, 2028. Proposal comments are due by November 30, 2023.

These measures improve the resiliency of the U.S. banking system. Undercapitalized banks contribute to crisis conditions that are bad for financial stability, reduce credit availability through the business cycle and hurt the financial well being of individuals, communities and businesses, especially the most economically vulnerable. 

We urge the banking agencies to remain steadfast in their commitment to finalize these reforms in a timely manner and reinstate essential requirements for Category IV LBOs. We also strongly encourage the banking agencies to restore or strengthen stress testing, living will, liquidity coverage, and net stable funding ratio requirements. These additional tools will further bolster LBOs’ financial resilience in the face of stress, particularly Category IV firms.